ALERT: Short Sale Fraud Alert Nationwide

I attended a webinar this week about Short Sale Fraud. As a real estate agent, I thought I knew all I needed to know on this subject but I was amazed. Here are some of the highlights.

Homeowners find themselves in a bad situation as their house is under-water and they need to sell. These homeowners need help from Real Estate agents but not fraudsters. If you as a Realtor are even involved in a fraud transaction, you are putting your license at risk.

Short Sale Flipping- As the listing agent, not disclosing to the bank that there is a better offer and then turning around in 2-3 hours to 2-3 days and simultaneously closing with the higher offer.

Reverse Staging- Making the property look worse by flooding a room or house, staining or cutting carpeting, putting holes in drywall, killing off landscape, breaking windows, stripping fixtures and appliances.

Who is Involved- All or part of the parties of a transaction can be involved:

Brokers

Appraisers

Under-Writers

Accountants

Investors

Real Estate Agents

Title Offices

Escrow Officers

Top States Involved in Short Sale Flipping-

Nevada-Las Vegas

California- Los Angeles

Florida

New York

New Jersey

Illinois

Texas

Fraudsters thinking the states may be too inundated to bother with them since fraud is so prevalent are wrong! If the loan is Federal (FHA-Freddie, Fannie) the F.B.I. has a nationwide task force involved in uncovering and prosecuting these fraudsters. F.B.I. reports that 9 out of 10 scams involve Loan Originating Schemes.

Operation Stolen Dreams- In 2010 the F.B.I. took down a nationwide scam involving 1215 defendants, made 485 arrests. Banks were defrauded of over 2.3 Billion dollars.

The Method-The way this works is the listing agent takes a short sale listing. Agent may get several offers but does not disclose to the bank the highest offer. Then the agent presents the lowest offer and gets a short sale approval and successfully closes the escrow. Meanwhile the agent assists the other buyer to purchase the home at a higher price (typically $50,000 more) and this escrow close within 2-3 hours of the first escrow. Or it may close 2-3 days later but the secret here is that the property was not improved.

It is legal for a buyer to put money into the property and successfully close 3 weeks later but will have invoices, pictures, contractors’ receipts, etc to prove to the underwriter that this was a legal flip.

**FHA has even reversed their 90 day flipping rule but all the improvements must be proven to get the higher price. The key words here are “Substantial Improvements”

Red Flags:

·You find out there is a simultaneous closing in escrow on the property. You as an agent may not be involved but will be drug into the investigation and possibly prosecuted as you ignored the signs.

·You take some additional funds outside of escrow. This is a no-no and never allowed.

·The buyer wants a clause to assign the name of new owner later. Banks rarely allow this anymore as they are aware of the deceitful practices.

·You get an offer and a Proof of Funds letter stating this LLC has millions or billions and is interested in buying your one SFR property. Typically corporations backed by millions+ are buying in bulk or picking up commercial properties.

SUMMARY:

Homeowners are out there and need your help. Statistics show that 70-90% of all foreclosed properties have never been in the MLS. This is astronomical and you as a real estate agent need to go out and find these homeowners and help them with their situation. Most will be glad you knocked on their door or sent them a letter to help.

Learn the mistakes so you will not be involved in any short sale fraud. Help the homeowners and remember to disclose, disclose, and disclose.

You will grow your income, become a recognized short sale expert and most of all you will build a database of fans who will remember you for life and send you more referrals. Also these homeowners will remember you in 2-3 years when they buy another home. Yes, 90% of these past homeowners will turn around and purchase when their lender says enough time has passed.The secret is to stay in touch with them so they do not forget you.

Inland Empire Homeowners, please call me for a Comprehensive Market Analysis to assist you with marketing your home for sale and getting the best price possible. Buyers, if you are planning to purchase real estate, let me assist you in finding the right home.Google me at Kristin Hamilton, Keller Williams Realty, Redlands, CA.

I agree with your remarks as well. I think where the fraud comes in is when the appraiser, escrow officer, agent and the buyer are all in it together and are holding good legitimate offers for a fair price but instead submitting a low ball offer and ripping off the bank. Then they will have a second escrow going simultaneously to sell the home a second time from the new owner to another buyer. Everyone gets $$ except the honest agent on the other side and the bank.

A few months ago I called about a pending offer and the agent told me to go ahead and show it and then if I had an offer, it would probably be accepted as a second escrow. I didn't understand what he was talking about and my buyer found a better house and thank goodness for that. I would have sure been unhappy to mixed up in a mess like that.

I agree with you totally that once a fair (not fraudulent) offer is accepted, the bank should not be accepting other offers or even looking at them unless the one under contract falls out due to problems. We have to be truthful and honorable to our clients, both the sellers and the buyers and the other agent....and the bank too. There should not be any juggling of offers or buyers or any kind of deceit. When I open escrow, I certainly expect it to close.

Sometimes an agent will innocently ask "Any chance this one is going to fall out?" and I hate that thought. I don't want to jinx it nor do I want to have to resale it again either. I just want to close in a couple of weeks and everyone goes away happy. I usually just say "I don't think so!"

So true....and the highest offer is not always the best offer. Like I just said above, we owe it to our clients to be upfront and honest. I do a net sheet for my sellers and they pick the offer. I just had one where the seller wanted to take the VA loan and it was going to net him less but he is a VET and that was his choice. I am there to advise and give the facts and the seller makes the last decision on what offer to accept or in some cases the bank. Banks tend to pick offers where the home will be owner occupied. Cash is not all it is cracked up to be in real estate as the banks make money on the interest of the loan.

In the case of 2 identical offers and one being a Conventional loan and the other being a FHA loan, the conventional appraisers seem to not call out repairs and usually go full price if there are good comps to support it but the FHA appraisers seem to come in lower and call out more repairs. Also in FHA, many buyers are asking for the Closing Costs and the appraiser doesn't add that to the price so the seller ends up netting less. In this case, I sometimes advise going with the conventional loan offer.

Yes when everything is disclosed, there is not any problems with doing it. Flipping has been going on for a long time and frankly it is the American way to buy low and try to sell high. Nothing wrong with that as long as you are honest. I am glad the lenders have reduced the amount of time for investors to hold on to the property until it can close a second time. I had a few not close due to coming in before the 90 days. OOPS....didn't know that rule but it only took me once to figure it out and wait a few more days and try again.

I'm with Karen #24 and Bill #26. I believe that my primary responsibility is to the homeowner to ensure a successful sale. I only am required to provide fair-dealing with the short-sale bank. I can only give advise, which is often listened to, but not always followed. Submitting "all offers received" to the short-sale mortgage holder I think actually undermines my duties to my client, the seller. The seller is the decision maker, not the agent. Think back a few years ago before the market imploded - our duties as a listing agent is to present all offers to the seller with no bias in the process. The seller may ask for our advise and then will make their decision. Too many agents today are assuming that they are the decision makers as their sellers are getting nothing from the sale. This is wrong thinking.

If I suspect ANY fraud, then of course it needs to be rooted out. That is part of my responsibility to the seller. The bank is a beneficiary of doing my job for my seller but the bank is not my client.

And to stay on topic, yes, there are lots of fraudulent deals out there and they can and should be reported to the FBI at: https://tips.fbi.gov/

I totally agree with you. If we are the listing agent, we represent the seller and the decision of what offer to take is totally up to then as we are here to advise them only.

My duty to the buyer is to be honest but they are not my seller and neither is the bank. I have had short sales where the bank asked how many offers were there and to upload them all. They agreed to the one my seller had chosen but I certainly would not lie and not tell them how many were sitting on my desk. Most banks only want the one offer and they just say "Send me the best" so I do and it is the one my seller chose.

Agents should not try to overstep their bounds but we must give them all the pertinent info like net sheets.

Gov Hutchinson from CAR spoke a few weeks ago and told us how many dishonest lender/agent, escrow all in one have been shut down with joint operations with local police/ DA and FBI task force. I was glad to hear it as they are ripping off sellers and buyers too.

It seems like every time we turn around, a new scam is going on. Knowing the red flags is good to help shut these fraudsters down.

I cannot count on one hand how many agents have convinced homeowners that have lost their home to foreclosure to stay in the home, pay them $5000 up front, $1000 a month and this goes on for 4-5 months and then they say...sorry we tried but couldn't stop it. In reality, no one has tried anything as the home has foreclosed, no one is calling the bank and their are no negotiations going on. Just a bunch of crooks scamming money from people who have lost their home. It makes me sick.

I had a friend in real estate who used to and I think still does; lists it and about 9 hrs later puts it on hold and waits for an offer and then double ends it. Never submits other offers and won't answer the phone when people call. This is so dishonest. I may never be rich but I will always be honest and follow the rules.

Hi Bob,I sure agree with you. My parents taught me a long time ago that you don't usually get something for nothing and they said if it seems to good to be true, it probably is false. I have lived by that premise all my adulthood.

Sellers and Buyers need to realize this; if it is too good to be true, there is probably a catch. Same with agents too. If another agent offers you a surefire scheme to get rich, there is a 99.9% chance it is illegal.

I have had deals that seem odd and the more I looked into it, the stranger it go. I have gone to my clients and said I think there is something wrong. So we backed out. Better to find another house or another buyer than to risk it all.

Hard work and honest pay off in the end. I will live by that all my real estate career. In this flipping some agents had no idea but still they put themselves at risk by not knowing the red flags.

It is very nice to know you too as we worked a deal together but unfortunately my bank chose another offer. You have a good reputation in Redlands too. Have a great weekend. Nice to know you are a AR member!

Great post, Kristin! Karen, Bill and the others are seeing it through their 'honest' eyes and obviously don't have an unethical bone in their bodies! (We tend to "see" what we "are") What they're doing is fine - but what you're talking about is not. You're talking about Agents that willfully and knowingly hold back the higher offer to make another sale - at a higher price - concurrently or shortly after the short sale - and most often for their own personal gain or that of another in collusion.

Amazed at how many Agents here were unaware of this - shows how ethical you all truly are! :)

I have always known agents in my other office that held offers or refused them as they were trying to double end the deal. I recall in the DRE test they asked could you hold offers and not show your sellers and the answer was no. No one worries since the DRE is so busy so they think one little agent would never get caught but it angers me. I have heard conversations when it just went into the MLS 15 minutes ago and someone calls this agent and is told I have 9 offers so send one if you want but they are all way over asking price. It was obvious what this agent was doing.

People think of ways to make a buck and someday they will get caught; maybe not for this but for something else. I just hate it when people are ripped off or innocent agents get dragged into deals that they did not understand.

There will always be somebody trying to beat the system........and many won't get caught! "Are you feeling lucky punk?"

In our MLS, when an offer is accepted on a short sale, the listing has to be pended, which of course, takes the house off the market. As listing agent, that makes you look closely at the offer to determine if you think it has a chance in hell of getting approved, or are we wasting our time

Yes you are right as there will always be someone out there trying ro beat the system. People think up these get rich schemes off the backs of others and in this case; the homeowner that is upside down. I hear this all the time; it doesn't matter since the owner is the bank. Well, it does matter and as a Realtor, we must do the honest and etical way.

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